by DANBURY, Conn. — Few people in our industry command as much respect as Farooq Kathwari, and with good reason. A genuine Kashmiri fighter, he took the helm of a moribund style ship 40 years ago, the SS Ethan Allen, and steered it to the front of the pack with the patience of a mountain climber. Someone as accomplished as Mr. Kathwari leaves a writer no choice but to mix his metaphors.
I recall with the clarity of a well-brewed glass of Earl Grey a sit-down interview with Mr. Kathwari at the Ritz-Carlton Amelia Island during which he explained that often mountain climbers have to drop back to recover their breathing and oxygen levels before beginning their ascent anew. Such was Ethan Allen’s ascent in the mid-1990s as it consolidated control by slowly buying back stores from its national network of independent retailers, renovating and relocating older stores, and enforcing airtight brand management.
The high point of Ethan Allen’s style leadership came appropriately in High Point, at an October market in the mid-1990s. As Furniture Today’s case goods editor at the time, I had the privilege of naming style trends as I saw them emerge at premarket a month before the big show. That particular season, all of the midmarket players had to have their own take on Crate & Barrel, Pottery Barn or Ethan Allen casual contemporary, a delightful style trend that married blonde wood, often ash, with either stone, burnished metal or both. I called it Boomer Casual, and Drexel Heritage had a version that remains one of my favorite collections of all time, Bel-Aire, which combined ash and travertine tops. Drexel followed up Bel-Aire with Corbel, another stunner in ash burl.
So, what happened? Where is that style leadership today?
Danbury pilgrimage
Attending Ethan Allen’s dealer conference each year in the mid-1990s became requisite, because there I could read some tea leaves regarding emerging styles, while at the same time cover what was a parallel universe to the High Point market. (Marji Chimes, wherever you are, thank you for making those visits possible!)
I haven’t attended High Point in quite a while, but it’s my guess that middle-market manufacturers aren’t pointing to their “Ethan Allen look” much any more. Ethan Allen has ceded its style leadership in service to creating an increasingly closed system and network. This has taken great patience, both on the part of leadership and shareholders, as disgruntled shareholder Doug Bergeron pointed out in his epistle to fellow shareholders last week.
“For too long, Ethan Allen’s board has allowed the company to stagnate and shrink under the same leadership that has failed to deliver meaningful growth for nearly two decades,” reads the gospel according to Bergeron. “Despite years of Chairman, President and CEO Farooq Kathwari’s promises of being ‘well-positioned,’ the company has only paid lip service to shareholder demands for investment in innovation, modernization and the digital capabilities needed to compete in today’s growing luxury furniture market. The result is a business whose revenue has declined for two decades, shrinking while competitors have taken market share and grown into multibillion-dollar platforms.”
Bergeron is right on in identifying how competitors have taken market share: digital-first platforms. As I have argued, the winners at scale in home furnishings today appear to be those who have invested heavily in technology and infrastructure such that they can achieve what is called a “flywheel effect.”
My examples have been two very different style animals, Wayfair and RH, but they are animals that have similar platform-based habitats or ecosystems. In the case of Wayfair, the flywheel effect has been achieved through a loyalty program (Wayfair Rewards) that might cost gross margin but saves on advertising spend, because members come back without needing to be reacquired, and an increasing commitment to physical stores as a marketing strategy, which costs operating expenses but generates new customers and expands basket or cart size online.
Each initiative feeds the others, creating what the big digital platforms call a “flywheel.”
In short, Wayfair’s flywheel brings in new customers, a percentage of them loyalty program members, with low prices and a large selection. This attracts suppliers and vendors who are eager to sell to this growing network of customers, and the virtuous cycle makes each more important to the other. It’s a virtuous cycle for which the paradigm is Amazon Prime.
‘I’m melting!’
Without the flywheel effect, ad spend and operating costs simply drag on profit, and the analogy for this, to borrow again from Bergeron’s cautionary letter, is a melting ice cube. Bergeron’s call for change tracked Ethan Allen’s annual revenue in a downward spiral, from nearly $1.1 billion in 2006 to $794 million in 2016 to $579 million in 2025. That’s quite a bit of melt. During this same time, Williams-Sonoma, which includes Pottery Barn and West Elm, and RH and Arhaus have more than doubled their revenue.
“Melting ice cubes eventually disappear,” Bergeron warned. And as Amazon has shown, the window of opportunity for investment in technology, infrastructure, logistics and, most recently, agentic AI remains open only for so long, for however long a few key competitors need to reach through that window, get to the other side and begin closing it thanks to their newly achieved scale.
Bergeron puts it well: “If sales continue to decline, operating margins will continue to come under pressure and further threaten the earnings power that should support future reinvestment in brand, digital capabilities and stores. If allowed to continue for too long, the melting ice cube analogy becomes a self-fulfilling prophecy.”
He is describing a reverse-flywheel.
Whether Ethan Allen needs a new board and/or a new chairman/CEO is not the point of this analysis; I don’t claim any expertise on that front, and I continue to believe that Mr. Kathwari, even at age 82, could not only scale the mountain but, if he saw the need, move the mountain.
But, when it comes to how younger furniture buyers shop and spend, the mountain has already moved, as Bergeron also points out.
“In an era where approximately 75% of furniture purchases begin online, digital should be central to Ethan Allen’s growth strategy,” he wrote in his clarion call last week. Digital should be “the front door to brand discovery, inspiration, customer acquisition and designer-led conversion,” not a side door, drive-through window or after-thought.
Amen, brother.
Cricket, anyone?
Mr. Kathwari has said that he has modeled his leadership of Ethan Allen on his experience as captain of a cricket club in his youth. Cricket is thought by many baseball historians to be the progenitor of American’s national pastime, and the two sports share a lot in common. This makes it eerily resonant that Bergeron’s demand for change at the top so resembles the clamor among Yankee fans to replace long-time GM Brian Cashman.
During Cashman’s tenure, which stretches back to 1998, the Yankees have played more than 4,500 games and have been out of playoff contention for just 22 of those games. Mr. Kathwari’s leadership stretches back to 1988, meaning that Ethan Allen has been a model of excellence for nearly four decades. But, the Yankees haven’t won a World Series since 2010, and now they’ve fallen behind the Dodgers as paradigm of ultimate success on the diamond. Ethan Allen has been losing market share since about that same time, and it’s falling further behind the likes of Arhaus and RH.
Cashman’s longevity has meant that when Cashman walks through Yankee Stadium’s offices, nearly everyone he sees is either someone he hired or someone hired by someone he hired, as a recent story in the New York Times Magazine points out. The description applies to Mr. Kathwari and his team, as well. But, there is a fine line between stability and stagnation, particularly when competitors are plowing ahead.
“That unusually long continuity extends well beyond the CEO role, with key decision-makers across strategy, design center development, technology, digital engagement, retail operations and marketing who have spent decades at the company, including several who have served for more than 40 years,” Bergeron notes in calling for wholesale change. “Has the board allowed stability to harden into organizational inertia?”
Home furnishings desperately needs good, great companies like Ethan Allen to succeed. And, with virtually no debt and enough assets and resources to reassert its industry leadership, the company can again hit a “sixer,” the term in cricket for “home run.”
